FF (store grain; 20% losses)150- FF (lend at 10%)„FF (invest grain; 50% return; borrow at 10%)„FF (invest grain; 50% return)110-80-6260Investing it all- and borrowingInvesting"LendingStoring13639+26-606568 80100Consumption now ($) Marco's endowmentSelect one or more:U a.Marco can reach point J by borrowing against his future income.O b. Borrowers are always worse off than lenders.O c. Investing all his endowment and simultaneously borrowing is Marco's best option.O d. At point J, Marco's marginal rate of substitution is 1.1.O e.At point H, Marco has an MRS of 0.8.O f.The diagram shows that borrowing against returns on future investment is always rational, if the bank willlendyouthemoney.g.If Marco cannot borrow and cannot invest a rise in the interest rate makes him better off. If he can investand borrow a rise in the interest makes him worse off.O h. If Marco can invest and borrow he will choose to borrow $136.36, the present value of $150.Consumption later ($)

Above problem pertains to intertemporal choice in which consumer has to distribute his consumption…

FF (store grain; 20% losses) 150- FF (lend at 10%) .FF (invest grain; 50% return; borrow at 10%) „FF (invest grain; 50% return) 110 80 62. 60 Investing it all and borrowing Investing Lending Storing 39- 26- 606568 80 100 136 Consumption now ($) Marco's endowment Select one or more: O a. Marco can reach point J by borrowing against his future income. Consumption later ($)

FF (store grain; 20% losses) 150- FF (lend at 10%) .FF (invest grain; 50% return; borrow at 10%) „FF (invest grain; 50% return) 110 80 62. 60 Investing it all and borrowing Investing Lending Storing 39- 26- 606568 80 100 136 Consumption now ($) Marco's endowment Select one or more: O a. Marco can reach point J by borrowing against his future income. Consumption later ($)

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter17: Financial Markets

Section: Chapter Questions

Problem 4SCQ: Which has a higher average return over time: stocks, bands, or a savings account? Explain your...

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